ESTEE ADVISORS P.LTD,GURGAON vs. DCIT, CIRCLE-1(1), GURGAON

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ITA 3339/DEL/2018Status: DisposedITAT Delhi25 March 2019AY 2014-153 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the authorities below erred by considering reserves and surplus as of March 31, 2013, instead of March 31, 2014, which is relevant for the assessment year. Furthermore, the subsidiary had accumulated losses during the relevant period, negating the applicability of deemed dividend provisions.

What were the facts?

The assessee company received loans, technical fees, and lease hire charges from its subsidiary. The Assessing Officer treated these payments as deemed dividend under Section 2(22)(e) based on the subsidiary's reserves and surplus.

What were the issues?

Whether payments made by a subsidiary to its holding company can be treated as deemed dividend when the subsidiary has accumulated losses. Whether the relevant date for determining accumulated profits for deemed dividend is the date of payment or the end of the financial year.

Which sections of the Income-tax Act were involved?

Section 2(22)(e)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH “SMC”: NEW DELHI

Before: SHRI AMIT SHUKLA

For Appellant: Shri Sanjeev Kapoor, CA
For Respondent: Shri S.L. Anuragi, Sr. DR
Hearing: 07/01/2019

O R D E R The aforesaid appeal has been filed by the assessee against impugned order dated 28.2.2018, passed by Ld. CIT(Appeals) Gurgaon for the quantum of assessment passed u/s 143(3) for the assessment year 2014-15. The assessee is aggrieved by addition of Rs. 6,42,347/- made by the AO as deemed dividend u/s 2(22)(e).

2.

The brief facts qua the issue involved are that, Ld. AO during the course of assessment proceedings noted that assessee has raised following sums from its subsidiary company, M/s. Estee Commodities Pvt. Ltd. in which assessee company was having shareholding of more than 10% of the equity shares: -  Loan amounting to Rs. 3,21,00,000/-  Technical fees amounting to Rs. 2,56,72,665/-  Lease Hire charges amounting to Rs. 5,39,328/-

3.

In response, to the show cause notice, the assessee submitted that M/s. Estee Commodities Pvt. Ltd. has accumulated losses of Rs. 58.25 lacs as on 31.3.2014, therefore, there is no occasion for invoking the provision of deemed dividend. Ld. AO then asked the assessee to furnish balance sheet and profit and loss account of the subsidiary company for the financial year 2012-13 and 2013-14. On perusal of the same, Ld. AO noted that as on 31.3.2013, Company had reserve and surplus of Rs. 73,62,347/- and therefore deemed dividend has been restricted to the said amount.

4.

Ld. CIT(A) held that out of the reserve and surplus amount of Rs. 73,62,347/-, sum of Rs. 67,20,000/- was securities premium reserve and hence only Rs, 6,42,347/- was an opening balance of the surplus as on 31.3.2014 and therefore, he restricted the addition to the extent of Rs. 6,42,347/-.

5.

After hearing both the parties and on perusal of the impugned orders, I find that both the authorities have taken the figures of ‘reserves and surplus’ as on 31st March, 2013, instead of 31st March, 2014 which is relevant for the assessment year 2014-15. The balance sheet showing reserve and surplus of the subsidiary company M/s. Estee Commodities Private Limited as on 31st March, 2013, and as of 31st March, 2014 were as under: - Particulars As at 31st March 2014 As at 31stMarch 2013 Securities Premium Reserve 67,20,000 - Surplus – Opening balance 6,42,347 (-)2,99,948 Add: Net (loss /Profit- (-)64,69,743 9,42,295 transferred from Statement of Profit and Loss (-)58,27,396 Surplus – Closing balance 6,42,347

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